RAA tempers optimism with concern over sticking points

Political and commercial agendas, both individual and collective, rarely allow for a wholly accurate assessment of the regional airline industry’s condition. With an array of conflicting and ambiguous signals from within executive circles, trying to gauge industry prospects at this year’s Regional Airline Association convention in St. Louis would prove as frustrating as ever.

Still, anxiety about the rise of discount carriers and public disenchantment with RJs clearly tempered expressions of optimism born out of double-digit traffic gains and a 5-percent increase in overall market share. The RAA not only admitted as much, it used the venue as an outlet to broadcast its warning messages.

Unfortunately for the uninitiated, detailed strategies for tackling “challenges” rarely escape the closed doors of the presidents council meeting, while organizers shepherd press types from one marketing presentation to another. To her credit, RAA president Debby McElroy each year sits with the association chairman for a question-and-answer session ostensibly designed to give delegates a sense of the issues under debate. As always, McElroy and new RAA chairman Phil Trenary chose their words judiciously, careful to highlight those points on which most of the RAA’s airline members agree.

The controversial Computer Assisted Passenger Profiling System (CAPPS II), for one, enjoys particularly strong support, despite concerns raised by the General Accounting Office over passenger privacy, government abuse and insufficient evidence of its effectiveness.

“Little old ladies aren’t blowing up airplanes,” said Trenary in response to the criticism. Rhetorically asked to identify who, in fact, does blow up airplanes, he replied, “Well, we know of only one case.” The association’s new chairman complained about an incident when the TSA flagged him for extra screening. Trenary contends that he, as an airline president, shouldn’t have to bear such scrutiny. He and McElroy also railed against screening of airline pilots. “The airlines do extensive background checks on all their employees,” she said. “We don’t need more screening; we just need to do it in a smarter fashion.”

Reminded of instances when regional airline pilots tried to sneak guns onto airplanes, McElroy glibly pointed to the fact that the federal flight deck officer program allows pilots to carry guns now anyway. McElroy also endorsed the proposal for a “Trusted Traveler” program, under which frequent travelers, after paying a fee and submitting to a background check, could get an ID card that would allow them to bypass airport screenings. Opponents of the plan argue that once a would-be terrorist learns how to manipulate the system, he or she will win carte blanche to pass through security at will. Others say the system would create a de-facto national identity card, establish a government-sanctioned class structure among citizens and pave yet another avenue for identity theft.

Notwithstanding arguments over the legality of CAPPS II, the RAA exists to help its members make more money, and just about all its positions reflect that singular duty. Airport hassles equate to less revenue, and tens of thousands of TSA screeners needed to perform searches and interrogation mean more costs. In four years the number of origin-and-destination routes shorter than 400 miles has dropped 25 percent, due largely to passenger aversion to airports and the failing economics of small turboprops.

Recognizing the futility of its argument that the government should bear all the cost of airport security, the RAA now concentrates on controlling the effects of security on revenue, hence the overwhelming support for CAPPS II. Meanwhile, cost-control efforts at the airlines remain largely internal, though one might encounter less than eager admissions that they center on pay concessions. For example, Comair president Randy Rademacher identified more efficient fleet use as his top priority. But when pressed on the 12-hour average use rates the airline now registers, he admitted “that’s about as far as we can go.”

Only later did Rademacher acknowledge that employee concessions stand among the some “100 initiatives” to address the problem. He refused to characterize the airline’s 2002 pilot settlement as excessive, however, calling it “comparable to many of the other regionals’ payscales at the time.” Nevertheless, few would argue that Comair’s comparatively expensive pilot contract played a role in its failure to win new Delta Connection flying that went instead to SkyWest, Chautauqua and Atlantic Southeast Airlines.

While alluding to the same contract, ASA president Skip Barnette said he took delight in “proving the industry wrong about [the ability of] wholly owned carriers” to win new flying from their parent airlines. Defying the view that ASA’s “maturing” cost base would place the airline at an irreconcilable disadvantage, Barnette attested to the value of his airline’s improving on-time performance and completion rates.

ASA suffered a serious public-relations blow last year, when the DOT ranked it near the bottom of the industry in operational performance. This year it has met its goals of a 98-percent completion rate and an 80-percent on-time average–the best showing in the airline’s 25-year history. “There are still some issues around [lost] baggage, particularly at the large hubs,” conceded Barnette. “But our investment in automation has allowed us to give precise numbers to the DOT. People tend to round numbers, and that affected our rankings.”

Of course, ASA’s status as a wholly owned carrier better affords it the time and resources it takes to build and adjust to new internal processes. It also allows it to concentrate on serving one master, while the less secure, independent regionals must diversify to protect themselves from the sudden loss of a partner.

Air Wisconsin, for one, has resumed its search for more partners following its divorce from discount carrier AirTran Airways. CEO Geoff Crowley said the relationship, born a year-and-a-half ago as an “experiment,” didn’t work for two main reasons. “We knew we weren’t going to bring good unit costs with RJs,” said Crowley. “Originally we talked about using our Dornier 328s but we couldn’t make that work. But we thought our trip costs with the RJs would be better [than they were].”

Crowley said that from the start he planned to assess the deal after a year to decide whether or not to continue it. Flying only 10 CRJs as AirTran JetConnect, Air Wisconsin needed to increase its volume to counter the inevitable low yields within AirTran’s territory. “If we couldn’t grow it, we didn’t want to do it,” said Crowley.

In direct contrast with Crowley’s assessment of his AirTran experience, Horizon Air president Jeff Pinneo said he feels “lucky” to count Denver-based discount carrier Frontier Airlines among Horizon’s code-share partners. Now overseeing nine CRJ700s flying as Frontier Jet Express, Pinneo said Horizon’s “good regional and cultural alignment” with Frontier offers advantages rarely seen in today’s cost-driven business. The 12-year deal, described by Pinneo as a revenue supplement, will eventually account for 23- to 24-percent of the regional airline’s capacity and 11 percent of its revenue, he added. “We have a busy summer coming,” said Pinneo.

Others hoping to stay busy include Mesaba Airlines, which, after settling a long contract dispute with its pilots in January, plans to “compete aggressively” for the rights to 150 Bombardier CRJs held by Northwest Airlines. Advertising a balance sheet that shows $150 million in cash holdings and no debt, CEO Paul Foley said he plans to use Mesaba’s Big Sky Airways subsidiary as a vehicle to attract code-share business from airlines other than Northwest. Foley said he recently broke off contract talks with United Airlines when the major airline asked Mesaba to sign a 10-year contract but assume the liability for 15-year airplane leases.

Now flying seven Fairchild Metroliners, Billings, Mont.-based Big Sky expects to take delivery of at least that many Beech 1900s once Mesaba reaches terms with Raytheon on a fleet-replacement plan. Under the terms of the pilot settlement, if the company wants Big Sky to fly airplanes certified for more than 19 passenger seats, it must use pilots from the Mesaba seniority list.

Notwithstanding Mesaba’s failed attempts to partner with United, the Chicago-based major airline has experienced little trouble finding regionals eager to fill the role left by Atlantic Coast Airlines’ exodus from the United Express family. Trans States Airlines, for one, expects its new contract to fly Embraer ERJ-145s as United Express will more than double its capacity by 2005 and give it the chance to graduate to 70-seat jets.

“To be a real competitor, you need to fly 70-seaters and above,” said Trans States COO Rick Leach. Because the UAL and American Airlines scope clauses don’t allow for airplanes that carry more than 70 seats, Leach acknowledged anything larger will have to fly within Trans States’ US Airways Express system–a distinct possibility given the US Airways pilots last month voted to allow the transfer of RJ positions from the wholly owned regional carriers in the event GECAS elects to pull its financing on deliveries to US Airways.

US Airways Express president Bruce Ashby said the parent company “has worked out a number of contingencies,” in the event of a GECAS pullout, including delivery transfers. Ashby also reported that new chief executive Bruce Lakefield fully intends to continue former CEO David Siegel’s plans for RJ development at Express.